The euro fell during the trading session on Friday as we continue the overall consolidation. It looks as if the 1.22 level is going to be difficult to get above, but given enough time, it certainly looks as if we will try to. The fact that we have continued to bounce around in this area and not pulled back drastically suggests that we are eventually going to build up enough momentum to go higher. If we do, it is possible that the market will go looking towards the 1.23 level, an area that has been important in the past. I do think that we eventually will make that move, but it is probably going to take some type of event or at least sustained pressure to finally break out.
To the downside, the 1.21 level should be supportive, just as the 50-day EMA will be. After that, then we have the possibility of a move down to the 1.20 handle. I do believe that the 1.20 handle is essentially the “floor in the market”, as it has been important more than once, and is psychologically important from a market standpoint. That being said, it is very unlikely that we will break down below there because the US dollar is under so much pressure.
If we were to break down below that level, then the market is likely to go looking towards the 200-day EMA. The 200-day EMA attracts a lot of attention in and of itself and causes a certain amount of support and trend following. If we were to break down below there, the overall uptrend would be completely destroyed, but I just do not see that happening in this environment. With the Federal Reserve is doing everything it can to flood the markets with liquidity, that means plenty of dollars floating around in the system. Furthermore, the European economic numbers continue to get better, and yields continue to rise in the EU as well. All of that leads to more of an upward momentum over time, so I think this is going to continue to be a market that a lot of value hunters and dip buyers will be attracted to. Nonetheless, this is a very choppy pair under the best circumstances, so keep that in mind.
